General deduction: s 8-1 Expenditure is deductible, there must be a nexus between the expenditure and income (Ronpibon Tin case – apportionment of expenditure would be necessary when the expenditure is included both capital nature and deductible expenditure) or expenditure must be necessarily incurred in carrying on a business to gain or produce such income (FCT v Snowden & Willson Pty Ltd). The loss incurred when the company was robbed – deductible under s 8-1; and the recovery of the loss from insurance would be assessable.

Business travel expenses (airfare, accommodation) related to the existing client – deductible; related to create new business – capital nature – not deductible If before the trip, business intention while charged into partially private, airfare is still full deductible (??? business trip,???????? ,???? private trip,??? deductible) If before the trip, private intention changed into business, airfare is still full deductible under s 8-1 (??? private trip,???????? ,???? business trip,??? deductible) ?? air ticket, ?? trip??? business??? ,??? deductible Accommodation & meal/entertainment would be apportioned to business and private.

Business part would be deductible under s 8-1 Capital expenditure: If the expenditure relating to the firm’s business structure and therefore the regarded as capital expenditure and not deductible under s 8-1 (Sun Newspaper Ltd & Associated Newspapers Ltd v FCT). But under s 40-880 provides a deduction over 5 years for capital expenditure that is otherwise not deductible and that related to a business that is, was or is proposed to be carried on for the purpose of producing assessable income.

The deduction is allowed in equal proportions over the period of 5 income years starting in the year which the expenditure is incurred. (?? 5?? expenditure??? deducted,? depreciation?? ,?? 5?? deduct). The new building would qualify as an eligible building and a deduction would be allowed equal to 2. 5% of the cost of the building. If the building is industrial building, attract the higher rate of 4% pa (s 43-150). Depreciation = cost * 2. 5% * holding days / 365 Borrowing expense: s 25-25:

TP may obtain a deduction for expenses incurred in borrowing money where the money is used to produce assessable income (e.g. stamp duty, legal fee). Expense ? 100 may be written off in the first year. If the expenses ? 100 they are spread over the period of the loan, not exceeding 5 years (1826 days). Depreciation = (borrowing expense / 1826) * days Bad debts: s 25-35: it is necessary that the debt is bad (not merely doubtful), and has been written off as a bad debt during the year in which the deduction is sought. A write-off by means of adjustment after the end the year is insufficient.

The debt must also have been brought to account as assessable income, or relate to money which has been lent in the ordinary course of a business of lending money by a TP who carries on a money lending business. Legal expenses: BP Australian v FCT – only sell BP oil ? deductible [if the petrol station does not sell BP oil, it will lead the market share of BP reduced. But if the TP spend the legal fee ? BP market share will go up ? revenue nature] NAB v FCT – provide home loan to defence ? deductible Hallstroms v FCT – prevent rival patent from being extended ?

Deductible [patent: if one company have this patent, on other company can use that technology. If TP spend the legal fee ? the company cannot extend the period of the patent ? revenue nature] Sun Newspaper v FCT – give money to rival not to have new newspaper ? not deductible Broken Hills Theatres v FCT – prevent another theatre license ? not deductible question 1: the legal fee is used to protect income or protect income-producing structure? ?

Protect income – like revenue ? revenue nature ? deductible ?protect income-producing structure – like ability to earn revenue / basement ? capital nature ? not deductible question 2: will significantly die or just lost portion of sales ? significantly die ? capital nature ? not deductible ? lost portion of sales ? revenue nature ? deductible TD 2002/1: the legal cost would be deductible under the positive limb of s 8-1(1). They would not be of a capital nature since they do not relate to the profit-making structure of the business. Rather they are of a recurrent nature, relating to the day-to-day operations of the business.

It includes the expenses for lodging the income tax return and preparation and lodgement of an objection to a notice of assessment. Fees paid for professional advice concerning the operation of the income tax law are only deductible where paid to a recognized professional tax adviser (registered tax agent). Expenditure on GST advice on business arrangements would not be deductible since it does not relate to the income tax affairs of the TP. But it is deductible under s 8-1. Expenditure related to income tax advice on the creation of the family trust would not be deductible (capital expenditure).

Individual Past years’ loss: s 36-10: a tax loss is incurred in any tax year if the TP’s allowable deductions > the assessable income and net exempt income of year. The amount of the loss is the amount of the excess. S 26-55: if there is a tax loss, the superannuation expense is ignored because a tax loss cannot be produced or increased by personal contributions to superannuation funds. Car expense: like: lease repayment, repair, petrol, oil, interest expense, registration, insurance, service charge, car wash, depreciation 1600cc (1. 6 litre) or less – 58c; 1601cc – 2600cc (1. 601 litre – 2.

6 litre) – 69c; 2601cc or more (2. 601) – 70c To claim a deduction for car expense TP must be able to substantiate the claim. Div 28 outlines the different methods available to a TP for claiming business-related car expense and Div 900 outlines the rules for substantiation. Cents per km – up to 5000km; 12% of original value, 1/3 actual expense – > 5000; Log book – no restriction In this case, as Sharon Stone has travelled more than 5,000 km in business-related travel, he can elect to use any one of the following 4 methods, providing that he has satisfied the substantiation rules for the method selected: “Cents per kilometre”(business travel kilometres (? 5000km) * cents per kilometre).

Subdiv 28-C “12% of original value”(12% * capital cost or market value for leased car) Subdiv 28-D; must > 5000km “One third of actual expenses”(1/3 * expense)Subdiv 28-E; must > 5000km “Log book” method”(business % x expense) Subdiv 28-F The substantiation requirements for the log book method are outlined in s 28-100. The log book must be kept for a continuous period of 12 weeks in the first year of the claim to establish the business usage (s 28-120).

Thereafter, a new log book must generally be kept every 5 years (s 28-115(2)). Odometer records must also be maintained which record amount other details the odometer reading at the beginning and end of the year to establish the total kilometres travelled (s 28-140). Furthermore, s 900-70(1) requires written evidence of expenditure incurred in running the car other than expenditure on fuel and oil (s 900-70(3)). Under the other three methods, the TP is not required to keep a log book.

If the one-third of total car expense method is used the TP must have written evidence of expense incurred and/or odometer records to substantiate an estimate of expenditure on fuel and oil (s 900-70). No substantiation is required where the TP uses the 12% of original value method or the cents per kilometre method. Base on Taxation Ruling TR 97/23, such as oiling, brushing or cleaning items otherwise in good working condition to prevent the possibility of future deterioration would not constitution repair.

Therefore, the expenditure cannot be deductible. In this case, the expenditure of car washes is not allowed to deduct. Entertainment expenses: s 32-5: entertainment outgoings incurred after 19/9/1985 are not tax deductible. S 32-20: an outgoing incurred by the TP for the purpose of promoting or advertising, to the public, goods or services provided by a business carried by the TP, or were incurred in providing a FB (like meals in the executive dining room) is deductible.

If the trip is less than 6 nights and for business purposes solely, employee does not have to maintain travel records, although written evidence of expenditure must be obtain. Entertainment expense is normally not deductible. But if it is really close to the meal (????????? play piano,?? piano player???? entertainment expense), it is deductible. Fine payable: s 26-5: not deductible (Madad Pty Ltd v FCT) Depreciating asset: Div 40: claim deprecation deduction every year. (1) asset?

10% GST = GST collected for each month/quarter: GST liability = GST collected – GST paid If GST payable < ITC ? get refund from ATO GST under accruals basis: it is required to account for the GST in the tax period in which he receives any of the consideration or issues an invoice, whichever comes first – operates under $1m ($2m for 07/08) cash threshold, it is entitled to account for GST on a cash basis (s 29-30). GST under cash basis (GSTR 2000/13): TP only accounts for any GST to the extent that he receives any consideration.

TP cannot change its attribution basis until a minimum of 12 months (GST Act s 25-55). Registration: s 23-5, 23-25, s 188-5 item 1: entities carrying on an “enterprise” must register if their annual turnover is $50,000 or more ($100,000 for non-profit bodies): s 23-5 GST Act, if expected annual turnover is over $50,000 for a profitable organisation or $100,000 for a non-profitable organisation, such an entity could be required to register for GST purpose. [As the expected turnover is lower ($22,000), this restaurant is only entitled to register.

The decision of whether to register is depending on the final GST liability position for 2007/08 year. As expected expenses are much higher than the expected revenue, it would be more favourable to the TP to start registration for GST straightaway and claim a higher ITC than wherever GST collected] Registration and cancellation: If TP’s current turnover is below the threshold of $50,000 but TP’s projected annual turnover is above threshold, TP is required to register for GST and must do so within 21 days (GST Act s 25-1).

If TP is registered for GST, however, TP’s annual turnover is expected to fall below thresholds. Usually, the Commissioner is not required to cancel TP’s registration, as TP has not been registered for at least 12 months (GST Act s 25-55). TP must make application for cancellation (s 25-55). While cancellation of registration will mean that TP no longer needs to account for GST on his supplies, it also means that he can no longer claim ITC for the GST paid on supplies acquired in running his business.

S 11-20,11-25: when calculating the amount to pay to the ATO for GST collected, the TP is entitled to offset an input tax credit for the GST paid on their “creditable acquisitions” 6 elements to be established to constitute a taxable supply: s9-5: any supply made; made for consideration; in the course with Australia; by a registered entity or required to be registered; the supply is not GST-free or input-taxed Commercial rent, ITC; residential rent, it is input-taxed, no ITC Raw and Unprocessed food will be GST-free, but all the others are taxable supplies, ITC Gift / supply to associates must be taxable supply as per Div 72 as it is for a consideration of market value.

So TP need pay 10% GST by himself Lack of ABN will invalid the invoice or failure to produce a tax invoice prevents any ITC to be claimed s29-70 An ITC is claimable for 1/11 of 200 for the hire fee, but for a refundable deposit there is no GST consequence because it will not form part of the consideration – Div 99 Any ITC for a creditable acquisition made under $50 is still claimable without the existence of a tax invoice, interest on repayment of loan is input-taxed on ITC is claimed Wages are outside the GST system, being specifically excluded under the definition of enterprise in GST Act s 9-20(2)(a), which provides an enterprise is an activity, or serious of activities done in the form of a business including any profession, trade, employment, etc. , but excluding employment as an employee.

Enterprise includes an activity or series of activities done by a charitable institution or by a trustee of a charitable fund (MT 2006/1) GST adjustment Decreasing adjustment for a supply: s 19-55: supplier reduced the net amount of GST for the later period because of the defective Increasing adjustment for an acquisition: s 19-80: purchaser must reduce its GST credit for the later period because of the defective Adjustment notes will be required to support the adjustment that has reduced the GST charge as a result of the goods being returned, which is an adjustment event (GSTR 2000/19). The adjustment note contains information broadly similar to tax invoices, as well as identifying the reason for the adjustment and the GST affected.

The adjustment note must be issued within 28 days of the earlier of the supplier becoming aware of the adjustment or the time the recipient requested the adjustment notes (GSTR 2001/1) Importation / Exportation GSTR 2000/31 and GSTR 2003/15 TP is entitled to a GST credit and GST for importation S 38-153(1): with respect to the export, the supply of goods is GST-free if the supplier exports them within 60 days after receiving any of the payment for them. If the goods have been invoiced before any payment is made, they must be exported within 60 days of the invoice being given. [keep records to prove that the timing requirements for exports to remain GST-free have been met] 3 situations for GST:

But financial/tax advice or financial planning are normally taxable supplies Partnership (ITAA) S 995-1 definition: common law partnership: persons carry on business in common with a view of profit; tax law partnership: an association of persons carrying on business as partners or in receipt of ordinary income or statutory income jointly, but does not include a company – FCT v McDonald (if persons just receive income from their property investment, it is not carrying on business, so there is no partnership relationship. The persons co-own the property.

But if they use the property to carry on business, the partnership profits or losses would be apportioned according to the partnership agreement) Net income of partnership: s 90: the assessable income of the partnership, calculated as if the partnership were a TP who was resident, less all allowable deductions. Payment by the way of salary and interest on partnership capital are regarded as a distribution of partnership profit and should be added back to determine the net income of the partnership. If there is a loan to the partnership and the funds are used by the partnership in producing its assessable income. The interest paid on the loan is not added back to determine the net partnership income Partnership loss: s 90: the excess of the allowable deductions over the assessable income of the partnership calculated as if the partnership were a TP who was a resident.

Foreign losses of a partnership are quarantined within the partnership and are not available for distribution to the partners (FL may be carried forward to offset against assessable foreign income of the later year) TD 92/113 Allowable deduction: s 8-1(1): the partnership is allowed a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing the partnership’s assessable income or are necessarily incurred in carrying on a business. S 8-1(2): outgoing of a capital, private or domestic nature are not deductible Loan between the partnership and its partner:

So the interest paid to partner is deductible. When partner receives the refund from partnership, whatever how partner deals with the refund, the refund won’t impact on the income and allowable deduction of partnership TD2004/24: the personal expenses of an individual partner are not incurred in the carrying on of a partnership business. Any borrowing by the individual partner on account of income tax relates to that partner’s personal income tax obligation and lacks of an direct connection which the business activities of the partnership.

The partner is not entitled to a deduction for interest on the borrowing Salary paid to partners: TR 2005/7: any form of additional remuneration drawn by a partner from the partnership funds for acting in the partnership business, as agreed amount the partners, where the salaried partners receives a fixed part of the profits of the partnership before the remaining part is divided among the partners in the appropriate proportions.

A partnership salary is not an allowable deduction to the partnership and is not taken into account in calculating the net income or partnership loss. If in a particular year the salary drawn by a partner exceeds the partner’s interest in the net income of the partnership, the excess is not assessable income of the partner. The excess is assessable to the partner in a future income year when sufficient profits are available.

If partner had only been a resident for part of the year, then that part of the net income attributable to him from an overseas sources source would be exempt from Australian tax for the period he was a non-resident Trust: S 97 – beneficiary presently entitled and not under legal disability. So beneficiary will be assessed S 98 – under a legal disability (beneficiary), distribution is assessable to trustee: beneficiary is under 18 years old; beneficiary is mental unsound; beneficiary is discharge bankrupt S 99 – trustee is assessable on net income of the trust to which no beneficiary is presently entitled ???? deceased estate, ?? presently entitled Trust losses: if there is a trust loss, there would have been no distribution in the current year.

The loss would be carried forward in the trust to offset against any subsequent trust income. E. g.: previous year loss 4000; current year income 45000, deduction 46800, net exempt income 7800. For the current year, deduction exceed assessable income by 1800, the excess is subtracted from net exempt income (7800-1800=6000 net exempt income) (s 36-15(4)).

The recipient’s contribution is the amount paid by the employee in respect of the provision of the FB (i. e. 200). TV before the “otherwise deductible” rule is 400. As the amount that would be deductible to employee if he had incurred the expense himself is 300, the TV of FB is 100. ???????? :? specific deduction “car expense” As employee owns his own car and the company reimburses the “car expenses” on a cents per kilometres basis, the FB is exempt pursuant to s 22. Employer gets a deduction under s 8-1 for the allowance as a cost of employment, FBT is not applicable Entertainment allowance (NOT FBT): an allowance is included in the definition of salary and wages in FBTAA s 136(1) and it is excluded from the definition of a fringe benefit.

The allowance is deductible to the employer provided the employee includes the allowance in assessable income Superannuation fund (NOT FBT): excludes from the FB if paid to a complying superannuation fund – s 136(1) Subscription to professional magazines and use of the airport lounge membership are NOT FBT – s 58Y Car phone is exempt from FBT if the phone is primarily for use in the employee’s employment – s 58X Company:

Taxation of corporate distributions – s44(1) Shareholders assessable income + franked distribution(s 44(1)) + franking credit (s207-20(1)) – allowable deduction = taxable income Taxable income * tax rate = gross tax payable Gross tax payable + Medicare levy – franking credit (s 207-20(2)) = net tax payable If the SH is a resident, assessable income of a SH in a company includes dividend that are paid to the SH by the company out of profits derived by it from any source.

If the SH is a non-resident, assessable income of a SH in a company includes dividend paid to the SH by the company to the extent that they are paid out of profits derived by it from source in Australia SH – s 6(1): includes a member or stockholder in a company Dividend – s 6(1): any distribution made by a company to any of is SHs, whether in money or other property. Any amount credited by a company to any of its SH as SHs.

Forgiving a debt owed by a SH is not a dividend (DFC v Black) Brookton Co-operative Society Ltd v FCT: a credit to an account must bring about a change in the legal relations between the company and its SHs. If a declared interim dividend can be rescinded by a directors, it has not been paid/ credited – “Paid” s 6(1) Resident SH received dividend from non-resident company: dividend after foreign tax85s 44(1) Add: gross-up foreign withholding tax15s 6AC (1) = Taxable income of TP100 Gross Tax Payable46. 5 Less: foreign tax credit(15)s 160AF Net tax payable31. 5.

Business expense(50,000) Gift expense(1,000) Superannuation(4000)(55,000) Excess assessable income45,000 2006/07 net exempt income3000 Less: 2005/06 tax loss(23,000)(20,000) Taxable income for 2006/0725,000 GST Noni has an extensive network of former work colleagues who promise to visit her restaurant. She is grateful for their support and provides them with meals at GST-exclusive prices. Supply to associates (supply, consideration, connected with Australia, enterprise, can register), will be taxable supply, liable for GST of normal market price.

Maud, a market gardener, contracts to supply Noni with fresh vegetables in return for a free meal each Friday night. There are two taxable supplies in this case. (There is a supply, for consideration, connected with Australia, can register, enterprise.)

Both liable for GST on market value of the consideration while can claim ITC it is used for creditable purpose (note that having meal on Friday night is not a creditable purpose). So Maud need pay 1/11 of the market value of the vegetable to ATO; Nomi need pay 1/11 of the market value of the meal to ATO. (If the vegetable is supplied by Maud is from the farm straightaway without any wash or other processed, it would be GST-free. Once it is washed or other processed, it would be taxable supply) Partnership: Dissolution of partnership: ?????? partner?? partnership,?????? income???? ,? partnership???? *income?? partnership???? *income: ? 50/50 8 months (800),? 33. 3/33. 3/33. 3 4 months(200).

Don155,298 * 50% + 1,500 = 79,149 Drawing to the partner, it is not deductible for partnership, it is not a distribution to individual partner as well, it is simply a return of capital only. Salary / interest paid to partners / super contribution to the partner, it is not deductible for partnership, but it is a distribution to individual partner (i. e. it is not assessable income for individual partner, it is distribution) Don’s taxable income Distribution79,149 Fully Franked Dividend700 Franking Credit300 700 * 30/70 (s 207-55(1)) Canada interest800 Canada foreign tax credit150s 6AC Less: super contribution(5,000) Taxable Income76,099 Don’s tax liability$18,289.

Trust net income37,507Each beneficiary’s share of net income37,507 / 3 = 12,502 Fixed trust calculated tax payable: Rose (under 18, she is minor) presently entitled but under legal disability. So trustee will be assessed under s 98(1). Because she is a minor, i. e. under age of 18 and is no employed full time, she is a prescribe person s 102AC. When the eligible income exceeds $1445, tax is payable on the whole of the eligible taxable income at the top marginal rate under ITAA36 Pt III Div 6AA. The trustee would be taxed on this income at the top marginal rate (45%) It is also not a deceased estate, Div 6AA penalty rate will apply to such distribution.

No Medicare levy since it is below the threshold. ($16,284) Tax = (12,502 – 6,000) * 15% - (286 + 50 + 600) = $39. 3. If Sunny is non-resident Tax rate will change to non-resident tax rate and he would not be entitled to any tax offset or Medicare levy Tax = (12,502 + 2,100) * 29% = $4,234. 58 FBT Car FBT The provision of a car would be a car fringe benefit under s 7(1). The value of the car is determined by use of: The statutory formula method – s 9(1) The operating cost method – s 10(2) As a GST input tax credit is available on the car, the gross-up rate would be 2. 0647 for the period from 1 April 2006 to 31 March 2007.